Is Marijuana a Good Financial Investment?

Is Marijuana a Good Financial Investment?

Fill in the blank: ____ may be the next state to legalize marijuana. I’ve seen Alaska, California, and Florida mentioned, and other states seem to be jumping up like the game pieces in the Whac-a-Mole arcade game. Almost a year ago, Tim Mullaney wrote in USA Today that “advocates hope to legalize personal use in another 14 states by 2017, mostly among the 16 states besides Washington and Colorado where medical pot is legal (it’s also legal in Washington, D.C.). Industry estimates say today’s $1.5 billion legal market could quadruple by 2018.”

Much of that is probably to be expected, but what I didn’t expect to see, back in January, was an investment specialist (Matt Kranz, in USA Today) discussing whether or not there’s money to be made in investing in companies selling marijuana for recreational purposes. “Many are looking for ways to profit from the trend,” he wrote. The big investors, like one private equity fund, seem to prefer the word cannabis to marijuana.

Kranz says that many of stocks relating to pot are penny stocks, and thus, in my mind, very risky. He mentions a number of companies with shares selling for under $1 a share; Growlife and GreenGro Technologies are two that are listed on the “OTC Bulletin Board Marketplace.”

I hyperlinked that, in case you’ve never heard of this securities marketplace.

He explains that these companies don’t have to meet any listing standards or have investor safeguards such as an independent board of directors, which sounds like a big red light, but then Kranz says there’s money to be made from these stocks, and that real estate investment stocks which own strip malls might gain in value if these companies locate there. Overall, however, he doesn’t recommend them.

Then there’s the pesky problem that selling pot is still a federal crime.

Still, “it’s a big pot that’s only expected to get bigger,” says another USA Today article. No pun intended, I hope. “Bloomberg Industries estimates national legalization could open the doors to a $30 to $45 billion a year industry.” The article also warns readers to watch out for scams.

In November, smaller marijuana businesses were not having as easy a time of it. A New York Times article with the headline “Banks Say No To Marijuana Money, Legal or Not,” maintained that bankers weren’t enamored of a business that is a federal crime, so the owners can’t get credit or even open bank accounts and accept credit cards. However, by January, the Politico website posted an article about Attorney General Holder announcing that the Obama administration would soon announce regulations that would make it easier for sellers to do business with banks.

The announcement was controversial, however: “A Justice Department spokesman said later that the attorney general was referring to legal “guidance” for prosecutors and federal law enforcement. Such a legal memo wouldn’t be enforceable in court and would amount to less than the kind of clear safe harbor many banks say they would want before accepting money from pot businesses.”

For now, the owners of recreational marijuana companies carry large amounts of cash to the bank and pay employees in cash, which is just plain dangerous. And in some communities, there’s a backlash about making marijuana legal, with legal challenges expected. This article asks “whether it will be a national industry providing near-universal access, or a patchwork system with isolated islands of mainly urban sales.”